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U.S. Factory Output Rises Just 0.1 Pct. In September

Mon, 10/28/2013 - 2:36pm
Christopher S. Rugaber, AP Economics Writer

WASHINGTON (AP) -- U.S. factories barely boosted their output in September, adding to other signs that the economy was slowing even before the government shutdown began on Oct. 1.

Manufacturing production rose only 0.1 percent, the Federal Reserve said Monday. That's down from a 0.5 percent gain in August, which was slightly lower than previously reported.

Automakers boosted their output in September, but the gain was offset by declines at makers of computers, furniture and appliances.

Overall industrial production increased 0.6 percent in September, mostly because of a 4.4 percent jump in utility output. Utilities had fallen for five months. But September was unseasonably warm, likely increasing air conditioning use.

Mining output, which includes oil production, rose 0.2 percent, its sixth straight increase.

Factory output is the largest component of industrial production. It had shown signs of rebounding over the summer, raising hopes that factories would help drive economic growth in the second half of the year.

But several reports suggest businesses and consumers had both grown more cautious right before the 16-day partial government shutdown. And overall hiring has slowed. Those factors could keep the economy weak until next year.

Orders for industrial machinery and other core capital goods, which signal business confidence in the economy, fell sharply in September, the government said last week. Economists pay close attention to those orders because they typically signal expansion.

Still, one measure of manufacturing said overall factory activity expanded in September at the fastest pace in 2 ½ years. The closely watched Institute for Supply Management manufacturing survey noted that production rose and manufacturers stepped up hiring, while new orders jumped, though not as quickly as the previous month.

Some economists see that as a sign manufacturing may yet pick up later this year or in early 2014.

"With a modest global recovery underway and the dollar now falling, we would expect industry to perform a bit better," said Paul Ashworth, an economist at Capital Economics.

A measure of the total existing capacity used by factories, mines and utilities rose to the highest level since July 2008. That suggests that if demand rises much more, companies will have to invest in more factories and other production facilities to increase output.

The Fed's gauge of capacity utilization is still about 2 percentage points below its 40-year average of just over 80 percent.

The Fed's report on industrial production was delayed by the 16-day shutdown. It was originally scheduled to be released Oct. 17.

Most economists predict growth slowed in the July-September quarter to an annual rate of about 1.5 percent to 2 percent, down from a 2.5 percent rate in the April-June quarter. And the shutdown is likely to keep growth at that sluggish pace for the final three months of the year.


Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), offered the following analysis of the latest numbers:

“While a surge in the output of utilities caused total U.S. industrial production to advance at a strong 0.6 percent clip in September, the output gain of the manufacturing sector was a far more muted 0.1 percent, considerably weaker than the 0.5 percent advance seen in August. Most of the output growth in manufacturing during September was a result of strong production gains in motor vehicle and parts as well as in machinery, the latter being a good sign for at least a modest rebound in overall manufacturing from the weakness seen in the spring.  A moderation in the pace of the housing recovery appears to have impacted the production of furniture, which fell by 0.7 percent during September, and was very likely a factor in the 0.2 percent contraction in the output of electrical equipment, appliances, and components.

“During the third quarter, manufacturing output advanced by a weak 1.2 percent on an annualized basis after contracting by 0.1 percent during the second quarter,” Waldman added. “A modest improvement in the global growth picture has strengthened U.S. export activity  to the benefit of U.S. factories.  But the tepid nature of the gains in key regions such as the Eurozone and China and the negative impact of historically significant levels of uncertainty in U.S. fiscal and monetary policy are holding back business investment, a key demand driver for manufacturing.  With neither a strong global recovery nor a resolution to the policy problems in Washington on the horizon, and with questions about the strength of the housing rebound, U.S. manufacturing output growth will likely be positive but muted for the balance of this year and into 2014.”

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